Noble Group Said to Seek Renewal of $1.2 Billion Credit Line

  • Company has held conference call with existing lenders
  • Financing needs have declined after commodity prices plunged

Noble Group Ltd. is in preliminary talks with banks to renew a $1.2 billion revolving credit facility, according to people with direct knowledge of the discussions.

The company already held a conference call with existing lenders about the 12-month loan that matures in May, according to the people, who asked not to be identified because the talks are private. They are not discussing a second $1.1 billion credit line that runs for a further two years, the people said. A spokeswoman for Noble in London declined to comment.

Trade financing and access to credit are the lifeblood of commodity traders, who need to fund shipments of everything from oil to grains. In a separate funding move, Noble started to shift from unsecured to secured financing last year, pledging portions of its commodity inventories to guarantee some debt and boost liquidity.

Noble said on Tuesday it will report the first full-year loss in almost two decades after $1.2 billion in writedowns mainly related to coal assets and contracts. The Hong Kong-based trader had its credit rating cut to junk by Moody’s Investors Service in December and by Standard & Poor’s in January.

“In terms of our refinancing, it’s important to stress that all our core financing banks have been made aware about the possibility of reserves and impairments, and we continue to make good progress on our revolver,” Noble Chief Executive Officer Yusuf Alireza said on a conference call Tuesday.

Commodities Retreat

As commodity prices retreat and the company sells assets, Noble’s financing needs are diminishing. The Bloomberg Commodity Index, a measure of returns across a basket of raw materials, fell to its lowest since at least 1991 last month, and Noble agreed to sell its remaining stake in its agriculture unit in December.

Moody’s said in a note on Tuesday that the impairment reported this week “heightens uncertainty regarding its ability to achieve adequate profitability and cash flow” and “the consequent negative impact on its relationships with banks and counterparties.” It cut Noble’s credit rating deeper into junk territory.

“The large losses could potentially complicate the refinancing of its revolving credit facility due May 2016,” S&P said in a note the same day. “We see some uncertainty regarding the financial covenant definition that could arise from the full-year loss.”

Secured Loan

The 12-month tranche pays interest of U.S. Libor plus 85 basis points and matures May 17, according to data compiled by Bloomberg. Companies typically pay more interest on loans when they lose their investment grade rating.

In October, Noble borrowed $1.1 billion against oil inventories with the help of six banks lead by The Bank of Tokyo-Mitsubishi UFJ Ltd. and Societe Generale SA. That more than doubled the $450 million Noble had previously held in the same type of secured loans.

Noble ended last year with a record cash balance of $1.95 billion, after generating about $330 million in free cash flow during the fourth quarter.

Noble is seeking to shore up its business after allegations were made about its accounting methods from the anonymous group Iceberg Research and Carson Block of short-seller Muddy Waters LLC. Noble denied the allegations and hired PricewaterhouseCoopers LLP to conduct a review. PWC said that Noble complied with accounting standards, while recommending changes in governance and the methodology used to value long-term contracts.

Credit-default swaps insuring $10 million of Noble Group’s debt for five years fell to $5.05 million upfront, and $500,000 annually, from a record $6.5 million in advance on Jan. 26, according to S&P Global Market Intelligence.

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